Tuesday, June 23, 2009

If you’re like me that have a very good video store near where you live, then perhaps you should share with them the following news that tells us that in the near future competition could come from McDonalds!!!

You know that I like to follow the business side of the movies industry and particularly I’m always interested in “new” ways to distribute films. But an article published recently in the New York Times really blew my mind. Here is a reproduction of the article.

With more subscribers than ever flocking to its DVD-by-mail service, Netflix is one of the few companies prospering during the worst recession in 70 years. But another upstart called Redbox has emerged to give the company a run for its business.

In 2002, Redbox was just an incongruous experiment that McDonald’s restaurants had tried to expand beyond burgers. McDonald’s strategy group tried selling everything from toilet paper to fancy sandwiches, but only the idea of DVD rental succeeded.

The group running Redbox grew from operating 12 of the DVD machines to about 900 in three years. Redbox today has more than 15,400 vending machines set up to dispense discs that rent for $1 a day in supermarkets and discount stores. In 2005 and 2006, Coinstar invested $37 million in Redbox; this year, Coinstar bought out McDonald’s and other investors for up to $25 million.

Redbox is opening an average of one kiosk an hour to lure consumers, which has Reed Hastings, chief executive of Netflix, taking notice. “By the end of the year, kiosks will likely be our No. 1 competitor,” Mr. Hastings said in a recent conference call. “There are already more kiosks in America than video stores.”

DVD kiosks account for more than half of Coinstar’s sales and profit. That profit more than doubled in the last quarter on sales that rose even more swiftly to $154 million. Netflix grew at a slower pace, with first-quarter revenue rising 21 percent to $394 million. Mitch Lowe, Redbox’s president, came to the company after six years with Netflix, where he was vice president for business development.

Netflix’s expanse of 100,000 titles gives it a competitive advantage. In contrast, Redbox machines carry about 700 discs with 200 titles, mainly recent releases, which leaves the company to rely on the $1 nightly rate to encourage people to experiment.

Because Netflix pays postage twice for every DVD it rents out, it does best when customers choose ambitious subscription plans, but are slow to watch and return movies. By comparison, Redbox’s profits depend on it renting out each disc as many times as possible before demand for the movie peters out.

To that end, Redbox tracks rentals to predict the right mix of titles and the right number of copies for each location.

If you feel like reading the article at the NYTimes go here where you can see a pic of the vending machines.

What’s REALLY interesting is that some of the titles Redbox carries are films like Waltz with Bashir, Happy-Go-Lucky, etc. in a category called Award Winners and the other category is Foreign with a few releases up-to-today, but with great potential. To check Redbox site go here.

You may say, so what? This is happening in the USA. Yes, is true; but the difference to mail service like Netflix (mail is not good in many countries in the world) is that Redbox is using a distribution outlet that’s ALREADY available allover the world, as many of us “unfortunately” have a McDonald’s very close to where we live!

So I wouldn’t be surprised if sooner than later we will start to see vending machines with DVD’s rentals inside McDonald’s! Obviously, as it happens with local entrepreneurs that will copycat the system, we could have all kind of branded or generic DVD’s rental “kiosks” next to the soft drinks or snacks vending machines in any other outlet where they already have their whatever vending machines.

This could really change the way we get to rent films in the world and thinking aloud, I believe that is the “perfect” business opportunity for those of you that are looking for a source of income in your own country.

Anyway, I envision that Blockbuster could do this faster allover the world than Netflix or Redbox, as the retailer is already in many countries of the world. But as it always happens with large corporations, their strategies take a long time to become real actions, which obviously opens the door to smaller faster local groups.

The REAL good news is that the film industry is evolving –at least with the distribution very important marketing element- and we film viewers definitively benefit with better opportunities to have easy access to film rentals with what could be cheaper rental prices.